Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs, contributes his knowledge and ideas about issues that affect the Midwest.

Tuesday, February 04, 2014

The Political/Economic Divide

You’ve heard the debate about the shortage of good jobs, the stagnation of wages, the collapse of the middle class – all the problems that ail the U.S. in general and the Midwest in particular. Actually, there’s not one debate but two, and that’s one reason why the problem isn’t getting solved.

Simply put, one debate is economic and the other is political. The real problem is both economic and political, but you’d never know it from listening to the two debates.

On one side are those who think that our problems stem from sweeping economic change, especially globalization. We’re in a new global economy now, they say. It’s an economy that pits American workers against Chinese workers, that encourages outsourcing, that prizes trade around the world over good jobs at home, that rewards skills and education, that privileges the 1 percent at the expense of the 99 percent, that is raising living standards in developing countries but hollowing the old industrial towns of the Rust Belt.

This side – call them the Economic Determinists – say that the way we’ve earned our living has gone away and isn’t coming back and that we’re in for a long slog, comparable to the century that elapsed between the Industrial Revolution and the spreading of its benefits to most of the people who worked within it.

The other side – call them the Political Determinists – say the problem is not globalization but the political follies of government officials. Throw the rascals out, they say. Get a government that will cut (or raise) taxes on the rich, increase (or cut) government spending, double (or get rid of) the estate tax, destroy (or encourage) trade unions, and all will be well.

The truth, of course, is that both sides are right. We are in a new economy, and this new economy does need a new politics, and we are indeed handling this badly.

“Globalization and technology are clearly part of the story. If you’re an American who works with your hands, you’re competing with low-paid workers across the globe, not to mention machines, to an extent scarcely imaginable a few decades ago. That competition pushes down wages for Americans without a college degree, and widens the gap between rich and poor.”

This is the Economist Determinist argument. But then Beinart adds:

“What globalization and technology can’t explain is why inequality is so much higher in America than in Europe, where the same tectonic forces are at play... Which is to say that while globalization and technology may be increasing inequality everywhere, they are increasing it more in the United States because, compared with Europe, the United States redistributes less money to the poor.”

Some of this divide in the debate goes with the territory. Economists too often live inside their equations, assuming that free markets will lead to the right answers. They make little allowance for the push-and-pull of politics, for the ways that economic illiteracy can lead to all-too-real political decisions.

Political thinkers, on the other hand, put everything in a political framework. Usually, they see the right decision as the one with the most political support, and the right outcome as one that gets its sponsor the most votes.

Naturally, most of the debate is more nuanced than this, as exemplified by two recent speakers at the Chicago Council. Chrystia Freeland, a journalist just elected to the Canadian Parliament, recognized that politics, while important, has to adjust to the new global realities. Hedrick Smith, another leading journalist, acknowledged the force of globalization but blamed many of the inequities on a 40-year political campaign by American business leaders.

Journalists are supposed to sort this out, weigh all the factors and lead their readers or viewers to a deeper understanding. Freeland and Smith work harder at this than most and, for all their differences, do a superior job.

But for most journalists, the algebraic mysteries of economics can be eye-glazing, compared to the horse-race school of political journalism. Economics is hard to learn and it’s a hard sell. Too many journalists simply don’t understand economics, even though it’s the key to covering almost any beat nowadays, from city hall to pro sports.

The Chicago Tribune’s star columnist is an old City Hall reporter named John Kass who flaunts his economic ignorance. He recently printed a column contrasting the many factory jobs in Chicago that awaited the hungry European immigrants of a century ago with the job shortage facing today’s young people.

“We don’t make jobs anymore in Illinois,” Kass concluded. “We make politics. That’s the big industry in the Land of Lincoln: politics and government.”

And that, he said, is why this year’s gubernatorial race is so important.

This is nonsense. Those early immigrants came to work in Chicago factories and stockyards that don’t exist anymore. The industrial economy that brought them here has given way to a global economy. No governor, Republican or Democratic, is going to change this fact.

But – and this is where the Economic Determinists miss the point – governors or other elected officials can affect how we deal with this new delivery. They can't change the economic realities, but they can harden or soften the social pain and turmoil caused by these realities.

As Beinart pointed out, the Germans and other Europeans have adapted to globalization with less economic hardship and inequality than we have. They have stronger safety nets, more focused industrial policies and, especially in Germany, much higher union membership than the Americans. This isn’t the government action that American conservatives such as Kass have in mind, but it does show that politics can make a difference.

There’s been considerable commentary recently on the impact of globalization on different Midwestern States. Most of these commentaries point out that Democratic-ruled Minnesota is doing better than Republican-ruled Wisconsin or Indiana.

Well, the Republican governors of Wisconsin and Indiana haven’t helped much. But the fact is that these two states have always been more dependent on heavy industry than Minnesota, and their governors have a steeper hill to climb.

The basic problem is economic change. A sane political response needs to recognize this. Economic purists who scorn political meddling are both heartless and wrong. But political warriors who think this problem will be solved at the next election are simply leading their electorate over a cliff.

1 Comment

We are clamoring about outsourcing of jobs to lower cost labor markets, we mourn that we don't have those jobs, yet forget that the reason we had them in the first place was that WE were a huge source of minimal skilled, low cost labor at the time. Europe has had more decades to adjust to the new economy, they're not just better at it. Education will always widen the gap, and journalists are great at asking questions and saying what's wrong...it's answers and solutions that are needed

The Global Midwest Initiative of The Chicago Council on Global Affairs is a regional effort to promote interstate dialogue and to serve as a resource for those interested in the Midwest's ability to navigate today's global landscape.